Sigma Magic Help Version 15

Kanban Analysis

Overview

Kanban is a visual method for controlling inventory originally developed as part of the lean manufacturing system. A Kanban controls what is produced, in what quantity, and when. The main purpose is to ensure that you only produce what the customer is asking and nothing more. Kanban is the Japanese word for a signal. It is a signal sent to the preceding operation to produce or deliver a new shipment as the material is consumed. It prevents overproduction of inventory which is one of the primary wastes in lean. The signals are tracked through the replenishment cycle and improve the visibility of stock throughout the system. The benefit of using a Kanban-type system is that it relies on actual consumption rather than forecasts which are always incorrect. Kanban is applied in several areas such as project management, software development, etc. In a Kanban system, strict rules are required to be followed so that people don't overrule the system and start producing excess inventory.

Implementing Kanban in an environment requires a certain minimum set of requirements in order to be successful. Some of the requirements are:

• Low product variation
• Regular demand from customer
• Quick changeovers
• Repeatable and reliable processes or suppliers

This particular tool helps with calculating the number of Kanban cards or signals to have in the system. This is critical because if you have too little inventory in the system, you run the risk of stockouts and not meeting customer expectations. If the inventory is too large, then there are additional costs due to carrying costs, obsolescence costs, etc.

To add this tool your workbook, click on Lean and then select Kanban Analysis.

Inputs

Click on Analysis Setup to open the menu options for this tool.

Setup

A sample screenshot of the setup menu is shown below.

1	Kanban Type: Enter the type of Kanban. There are three options to choose from: Option Description Material A material Kanban is to pass the authorization for the movement of parts from one stage to another. Production A production Kanban releases an order to the preceding stage to build the lot size indicated on the card. Supplier A supplier Kanban process is a connection between external vendors and the Kanban system.
2	Time Unit: Specify the units for measurement. Option Description Hours All the numbers are reported in hours. Days All the numbers are reported in days. Weeks All the numbers are reported in weeks. Months All the numbers are reported in months.
3	Method: Specify the methodology to calculate the Kanban sizes. There are two approaches you can use. Option Description Average Use the method based on average demand and average lead time. Service Level Achieve a certain service level.
4	Container Size: Specify the container size. This is the number of units that are placed in the container. Each container carries one Kanban card. So, if the container size is 10 units. One Kanban card results in the production of 10 units. If each unit is a container, then specify the container size as 1.
5	Order Period: Specify the order period. This is the frequency at which the parts are produced or ordered. For example, if you specify an order period of 2 days then your order is produced only every other day. So, the total production is the product of order period and demand per period. If you specify an order period of 0, then there is no waiting and a Kanban card received at a station is immediately produced. However, in the real world a particular station may be making multiple products and not all products are produced every day. So, depending on the production cycle a particular product may only be made once in 3 days (for example). This becomes the order period.
6	Safety Stock: Specify the safety stock or the required service level. If you select the Average methodology, you will need to specify the safety stock which is calculated based on the overall cycle stock. If you specify the service level, the safety stock is calculated based on variation in the demand rate, lead time and the required service level. The service level is translated to the safety stock based on the normal distribution Z value.
7	Average Demand: Specify the average demand, either based on historical data or more importantly expected demand in the upcoming period.
8	Average Lead Time: Specify the average lead time, either based on historical data or more importantly expected lead time in the upcoming period.
9	Min Demand: If you specify the service level method, then you will also need to enter the best case demand and worst case demand in the minimum and maximum demand cells. This information is used to estimate the standard deviation of demand. If there is no variation in the demand, just enter the average demand for the minimum and maximum demand.
10	Min Lead Time: If you specify the service level method, then you will also need to enter the best case demand and worst-case lead time in the minimum and maximum lead time cells. This information is used to estimate the standard deviation of the lead time. If there is no variation in the lead time, just enter the average lead time value for the minimum and maximum lead times. Note that if you are predicting production lead time, you need to consider all the various factors for estimating the lead time, such as setup time, production time lot size, machine downtime, quality levels, etc. If you are estimating the lead time for material Kanban, then you need to consider the pickup time, holding time, replenishment time, and any other delays that are part of the regular process.
11	Max Demand: If you specify the service level method, then you will also need to enter the best case demand and worst-case demand in the minimum and maximum demand cells. This information is used to estimate the standard deviation of demand. If there is no variation in the demand, just enter the average demand for the minimum and maximum demand.
12	Max Lead Time: If you specify the service level method, then you will also need to enter the best case demand and worst case lead time in the minimum and maximum lead time cells. This information is used to estimate the standard deviation of the lead time. If there is no variation in the lead time, just enter the average lead time value for the minimum and maximum lead times.
13	View Example: Click on this button to open the example file. You can view the example to get an idea of how to fill out this tool or you can use the example as a starting point and modify it to meet your project needs.
14	Help Button: Click on this button to open the help file on this topic.
15	Cancel Button: Click on this button to exit without saving any changes.
16	OK Button: Click on this button to save changes and update your analysis results.

On the worksheet, you will need to enter the inventory level that you observe for this process (if you have this data). If you don't have inventory level data, you can choose to leave this column blank. Use the same period defined in the options dialog box to enter the inventory level. For example, if you specify the period as days, you will need to enter the inventory level observed at the supermarket every day in this column.

Charts

If you click on the Charts button, you will see the following dialog box.

1	Title: The system will automatically pick a title for your chart. However, if you would like to override that with your own title you can specify a title for your chart here. Note that this input is optional.
2	Sub Title: The system will automatically pick a subtitle for your chart. However, if you would like to override that with your own subtitle you can specify a subtitle for your chart here. Note that this input is optional.
3	X Label: The system will automatically pick a label for the x-axis. However, if you would like to override that with your own label for the x-axis you can specify a different label here. Note that this input is optional.
4	Y Label: The system will automatically pick a label for the y-axis. However, if you would like to override that with your own label for the y-axis you can specify a different label here. Note that this input is optional.
5	X Axis: The system will automatically pick a scale for the x-axis. However, if you would like to override that with your values for the x-axis, you can specify them here. The format for this input is to specify the minimum, increment, and maximum values separated by a semi-colon. For example, if you specify 10;20 then the minimum x-axis scale is set at 10 and the maximum x-axis scale is set at 20. If you specify 10;2;20, then, in addition to minimum and maximum values, the x-axis increment is set at 2. Note that this input is optional.
6	Y Axis: The system will automatically pick a scale for the y-axis. However, if you would like to override that with your values for the y-axis, you can specify them here. The format for this input is to specify the minimum, increment, and maximum values separated by a semi-colon. For example, if you specify 10;20 then the minimum y-axis scale is set at 10 and the maximum y-axis scale is set at 20. If you specify 10;2;20, then, in addition to minimum and maximum values, the y-axis increment is set at 2. Note that this input is optional.
7	Horizontal Lines: If you want to add a few extra horizontal reference lines on top of your chart you can specify the values here. The format for this input is numeric values separated by semi-colon. For example, if you specify 12;15 then two horizontal lines are plotted at Y = 12 and Y = 15 respectively. Note that this input is optional.
8	Vertical Lines: If you want to add a few extra vertical reference lines on top of your chart you can specify the values here. The format for this input is numeric values separated by semi-colon. For example, if you specify 2;5 then two vertical lines are plotted at X = 2 and X = 5 respectively. Note that this input is optional.

Verify

If you click on the Verify button, the software will perform some checks on the data you have entered. A sample screenshot of the dialog box is shown in the figure below. The objective of this analysis as well as any checks that are performed is listed in this dialog box. For example, the software may check if you have correctly specified the input options and entered the required data on the worksheet. The results of the analysis checks are listed on the right. If the checks are passed, then they are shown as a green-colored checkmark. If the verification checks fail, then they are shown as a red-colored cross. If the verification checks result in a warning, they are shown in the orange color exclamation mark and finally, any checks that are required to be performed by the user are shown as blue info icons.

Outputs and interpret results

Click on Compute Outputs to update the outputs. The system will calculate the required number of Kanban cards and also the level of inventory (safety, cycle, and total) for this scenario. If you have entered the inventory levels, the system will also try to plot this data. The plot of the data contains three zones. the safety stock level is shown in the red zone, the cycle stock inventory is shown in the green zone, and overstock situations are shown in the yellow zone. Ideally, your inventory levels should stay in the green zone. If you are operating in the red zone, there is a danger of material running out and not be able to meet customer demand. If you are operating in the yellow zone, then you are clearly in an overproduction scenario. You can look at reducing the number of Kanban cards in the system or enforcing policies to see why you have more inventory than planned. You can use the Kanban results to design and implement your Kanban system. Once you implement it, you can monitor the graph to see how the process is running. If you are operating close to the red zone or the yellow zone your process may not be optimal, and you may need to tweak the process.

Notes

Here are a few notes regarding this analysis:

• For the average method, the number of Kanban cards is based on the average demand multiplied by the average lead time and the safety factor divided by the container size. For the service level method, the standard deviation of the lead time and demand is estimated from the minimum and maximum data, and the service level is used to estimate the Z values. The number of Kanban cards, in this case, is the estimated demand multiplied by estimated lead time and divided by the container size. Where the estimated demand (lead-time) is the average demand (lead-time) plus the Z factor times the standard deviation of the demand (lead-time). The standard deviation is calculated as (max-min)/6.

Examples

Following examples can be found in the Examples folder within the software.

• Calculate the Kanban size for the data given in the attached file (Kanban 1.xlsm).